Wynn Gets First Chance to Grill Okada in Casino Battle

Wynn Resorts Ltd.'s board said Kazuo Okada was “unsuitable” under Nevada gaming law as a controlling shareholder, claiming he made improper gifts and payments to officials in the Philippines where he’s building a casino resort. Photographer: Jerome Favre/Bloomberg

Sept. 13 (Bloomberg) -- Gaming mogul Steve Wynn may gain an
edge in his courtroom battle for control of a $10 billion casino
empire as business-partner-turned-rival Kazuo Okada is forced to
answer questions from Wynn Resorts Ltd.’s lawyers.

The Japanese pachinko magnate’s court-ordered deposition,
set for Sept. 18 in Las Vegas, will mark the first time Okada,
who resides in Hong Kong and resisted coming to the U.S., will
face Wynn Resorts’ attorneys after the casino operator’s board
forcibly redeemed his 20 percent stake in the company at an $800
million discount.

“This is a significant tactical victory for the Wynn
side,” said Matthew Close, a lawyer with O’Melveny & Myers LLP
in Los Angeles who isn’t involved in the case. “Depositions can
be case-defining.”

The questioning of 69-year-old Okada under oath may show
Wynn, 70, what he’s up against as he wages multiple legal
battles to keep control of the company he started with Okada 10
years ago that operates casinos in Las Vegas and in the Chinese
special administrative region of Macau.

Wynn, the company’s chairman and chief executive officer,
also faces challenges from his ex-wife, who wants to sell her 10
percent stake in the company, and scrutiny by the U.S.
Securities and Exchange Commission of an HK$1 billion ($129
million) donation last year to the University of Macau.

Controlling Shareholder

The Wynn Resorts board said Okada was “unsuitable” under
Nevada gaming law as a controlling shareholder, claiming he made
improper gifts and payments to officials in the Philippines
where he’s building a casino resort. The deposition stems from
Okada’s attempt, as a Wynn Resorts director, to gain access to
corporate files going back as far as 2000 related to the
company’s efforts to get a casino license in Macau.

Wynn’s lawyers have said Okada is trying to dig up evidence
for a so-called unclean hands defense that Wynn improperly
courted officials in Macau, just as he accuses Okada of having
done in the Philippines.

Questioning Okada will reveal “what besides his own
personal venom for Mr. Wynn and his personal agenda in his
lawsuit against Wynn Resorts has motivated his request,” Wynn
Resorts said in a June 18 court filing.

The deposition, which will take place behind closed doors,
can be used as evidence in court, where Wynn and Okada are also
squaring off in a separate lawsuit before the same judge over
the alleged breach of fiduciary duty by Okada that prompted Wynn
Resorts’ board to redeem his 24.5 million shares.

‘Unclean Hands’

“The deposition will show whether or not Mr. Okada
currently has any facts and evidence to support his claims
against the Wynn side,” Close said. “If the Okada team does
not have those facts now, it will certainly color the litigation
going forward and the Okada side will face an uphill battle on
their unclean hands arguments.”

Michael Weaver, a spokesman for Wynn Resorts, declined to
comment on the deposition. Steve Getzug, a spokesman for Okada,
also declined to comment.

Okada met Steve Wynn while selling gaming devices in
Nevada, according to a court filing. In 2000, the Japanese
businessman invested $260 million for a 50 percent stake in a
predecessor company to Wynn Resorts. Two years later, Okada
invested an additional $120 million and became vice chairman of
Wynn Resorts.

Okada and his family are ranked 719th on Forbes’s 2012
billionaires list, with a net worth of $1.8 billion, while Steve
Wynn is 491 on the list with an estimated fortune of $2.5
billion and his ex-wife, Elaine, is 913th with $1.4 billion in
assets.

Okada’s ‘Suitability’

Wynn spoke to the closeness of their relationship while
testifying to the Nevada Gaming Commission in 2004 in support of
Okada’s “suitability” as a controlling shareholder, according
to a June 14 court filing by Okada.

“I have never dreamed that there would be a man as
supportive, as long-term thinking, as selfless in his investment
as Mr. Okada,” Wynn told the commission, according to Okada,
citing the CEO’s sworn testimony before the commission.

The fight between the two billionaires erupted Feb. 19 when
Wynn Resorts said that its board had decided to redeem Okada’s
shares and asked him to resign as a director. Okada must wait 10
years to cash out a promissory note for a redemption of $1.9
billion, an amount Okada said is 30 percent below the shares’
market value.

Nevada Court

The same day, the company sued Okada in state court in Las
Vegas, accusing him of making improper payments to gaming
regulators in the Philippines, where he’s building two casinos
and three hotels in Manila seeking to lure “high-limit, VIP
gamblers” from China to compete with Wynn Macau.

An investigation conducted for the company by former
Federal Bureau of Investigation Director Louis Freeh, who was
also a federal judge and is now a lawyer in private practice,
found that Okada and his associates gave more than $110,000 to
Philippines officials, including payments for “luxury lodging,
extravagant dinners, shopping, and cash to spend” in apparent
violation of the U.S. Foreign Corrupt Practices Act, according
to the complaint.

Okada had the lawsuit removed in March to the federal
court, where he filed his counterclaims. U.S. District Judge
Larry Hicks agreed with Wynn Resorts that Okada had no
“objectively reasonable” basis to have the case heard in
federal court. The judge sent the case back to Nevada state
court and ordered Okada to pay Wynn Resorts $148,583 in
attorney’s fees.

Ulterior Motives

Each side claims the other has ulterior motives for making
allegations of wrongdoing.

Okada’s court filings trace the conflict to Steve Wynn’s
2009 divorce from Elaine Wynn, which left Okada as Wynn Resorts’
largest shareholder.

Okada, who made his fortune in pachinko and other gaming
machines, said the divorce cut Steve Wynn’s stake in Wynn
Resorts in half. “The possibility loomed” that Wynn would lose
control of the company as he did 10 years earlier with Mirage
Resorts Inc., Okada said in court papers.

Mirage Resorts

Okada’s challenge in court now is to muster evidence
showing the real reason Wynn wants him off the board is to avoid
a repeat of the Mirage Resorts debacle, said Robert Klieger, a
lawyer with Kendall Brill & Klieger LLP in Los Angeles who isn’t
involved in the case.

“Okada tells a compelling story that Wynn was trying to
eliminate the largest shareholder in order to maintain control
of the company,” Klieger said in a phone interview.

Wynn Resorts has said in court filings that Okada’s pursuit
of company records is a “charade” intended to distract
attention from his activities in the Philippines.

“There is no corporate governance at stake here,” James
Pisanelli, a lawyer for Wynn Resorts, said at a May 17 court
hearing.

Lawyers for Okada said in court filings that, as a
director, he isn’t required to establish a purpose or make
factual allegations of actual wrongdoing to justify his request
to inspect corporate records.

Records Request

Nevada state court Judge Elizabeth Gonzalez, who is
presiding over the litigation, ordered Wynn Resorts in March to
hand over only two more pages of documents to Okada beyond what
he’d already been offered. In June, after Okada made a renewed
request, Gonzalez gave Wynn Resorts permission to question Okada
before she decides whether he has a “proper purpose” for
seeking the records.

Allowing the deposition is an unusual move by a judge so
early in a high-stakes court fight, Close said. Okada may risk
losing credibility with the judge if he doesn’t show in the
deposition that he has a reasonable need for the records, said
Close, the O’Melveny & Myers lawyer who’s following the case.

“This is very unfavorable to the Okada side,” he said.
“You don’t want to give a free, early deposition.”

University Donation

Okada’s records request already has succeeded on one front
-- prompting the SEC to ask Wynn Resorts to preserve information
about the University of Macau pledge. The company has said the
pledge was consistent with its long-standing practice of
supporting institutions in markets in which it operates.

The university donation doesn’t look troublesome on the
surface because many countries require charitable contributions
to get a permit or license, said Philip Urofsky, a former
federal prosecutor who handled Foreign Corrupt Practices Act
violations, now with Shearman & Sterling LLP in Washington.

It becomes a problem if the money ends up in the pockets of
government officials, and Wynn Resorts may need to explain what
steps it took to make sure the donation is used only for the
university, Urofsky said.

“There’s nothing that says you can’t make charitable
donations to improve your chances to win business,” Urofsky
said in a phone interview. “If that benefits a foreign
government, that’s fine. The FCPA is designed to fight
corruption of government officials.”

Elaine Wynn

As Steve Wynn spars with Okada, he is also trying to fend
off his ex-wife’s attempt to sell her stake in Wynn Resorts.

Elaine Wynn, who sits on the company’s board, filed a
request for a judge’s order invalidating the stockholder
agreement with her ex-husband and Okada. That agreement bars her
from selling her 10 percent stake.

The initial 2002 agreement, which stipulated that Okada and
Steve Wynn would vote their 25 percent stakes as a block, gave
Steve Wynn control over who was elected to the board, Elaine
Wynn said in a June 19 court filing.

She came to own 10 million shares, worth about $1 billion,
after the 2009 divorce that entitled her to half the couple’s
community assets. The stockholder agreement was then amended to
include her. Steve Wynn wanted to restrict her ability to sell
the shares because he didn’t want to give Okada an opening to
also renegotiate restrictions on his shares, she said in a court
filing.

With the forced redemption of Okada’s shares in February,
Elaine Wynn argued in the filing that there’s no longer a reason
for her to be bound by the restrictions. Steve Wynn maintains
that she can’t sell her shares without his consent, according to
the filing.

Mark Fabiani, a spokesman for Elaine Wynn, declined to
comment on her court filings.

If Elaine Wynn gets permission to sell her shares, Steve
Wynn would hold only 10 percent of the company, rather than the
40 percent he controlled a year ago, making it more vulnerable
to potential unsolicited bids.